NI rise to cost extra £1billion

The NHS and other large publicsector employers face extra annual charges of up to £1 billion a year as a result of tax rises announced in the Budget, it emerged today.

The full implication of the 1p increase in National Insurance contributions announced by Gordon Brown began to become clear as the Tories estimated the total state employers would have to pay.

The figure is £300 million more than the £700 million a year calculated by the Confederation of British Industry. But senior Tories warned that was almost certainly an underestimate.

At least £200 million a year more will be paid from April 2003 by the NHS, Britain's biggest employer with a workforce of more than one million. Other large public-sector employers include the Ministry of Defence and local authorities.

The figures came as Tony Blair vowed to "take on" unions who are out to grab a share of the extra cash for their members in the form of big pay increases.

The battle lines have been drawn by Beverly Malone, general secretary of the Royal College of Nursing, who demanded a "bumper, substantial and sustainable increase" for her members.

The RCN, meeting in Harrogate, has refused to rule out industrial action in pursuit of a pay claim of between five and 10 per cent. Dr Malone claimed that the "money is there". Other union leaders are also hoping that Mr Brown's extra £8.5billion a year will benefit their members in the public sector.

John Edmonds, general secretary of the GMB union, claimed tax rises had been welcomed by a demoralised Labour movement and told ministers not to undermine this by "nervy attempts to unruffle the feathers of big business".

Mr Blair, however, used a TV interview to make it clear he would not shirk a battle over pay. He added: "I have shown that where I have a disagreement with the unions and I believe the national interest requires us to do something they don't want then I am prepared to take people on."

He refused to rule out further hikes in National Insurance - saying he was not going to write future Budgets. However, he signalled such moves were unlikely.

Mr Blair also struck some observers by his repeated use of the personal pronoun throughout his interview with Sir David Frost on BBC1. Some at Westminster claimed the move was a deliberate one to warn off Mr Brown and to make it clear he was in charge. He said: "Five years ago I came to power" and added: "After I came to office ... I promised we would sort the economy out - we have."

Supporters of Mr Blair claim the Prime Minister was forced to "put Brown his place" because the Chancellor was seen as becoming too powerful - and too popular with MPs after his Budget.